Rising commodity prices including steel which is the dominant part of a wind turbine are slowing down orders and wind projects, but at the same time higher energy prices are making wind power more affordable. But many wind turbine farms are based on negotiated electricity prices and if Vestas passes on all the cost increases then these projects may no longer be profitable for the operator. So the volatility in steel prices is making planning more difficult and Vestas may suffer from this conundrum for a while. The long-term outlook for wind turbines does still long strong as governments and COP26 talks show huge support for the transition to renewable energy sources. The question is whether investors will look past the next year and keep Vestas at these high equity valuations (valued at 30x FY22 earnings).
Sentiment sours on Orsted despite earnings beat
Orsted reported earlier Q3 EBITDA of DKK 3bn vs est. DKK 2.8bn and revenue of DKK 14.5bn vs est. DKK 9.8bn, driven by the centralized heating and power business offsetting weakness in its offshore wind power business that has been hit by historically low wind speeds this year costing the company DKK 2.5bn compared to the first nine months of 2020. The company announced that it is divesting 50% of its Greater Changhua 1 wind farm and earlier this year it sold a portion in a zero-subsidy German wind farm underscoring the investor demand for these wind farm projects. Shares are nevertheless down 5% in today’s session as investors might be questioning the valuation relative to the growth in the business.